Are Low Oil Prices about to Wreck the U.S. Economy? oil-prices-fallen gIf. You have recently filled up you car or truck, then you have surely noticed that gas prices are much, much lower than they were even just a couple of months ago. Filling up is now much cheaper. You have got more money in your pocket. And you feel richer because of it. But are oil prices this low good news for the U.S. economy? Michael Snyder answers the question: Are much lower oil prices good news for the U.S. economy? Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street. Yes, lower gasoline prices are good news for the middle class. I certainly would rather pay two dollars for a gallon of gas than four dollars. But in order to have money to fill up your vehicle you have got to have an income first. And since the last recession, the energy sector has been the number one creator of good jobs in the U.S. economy by far. Barack Obama loves to stand up and take credit for the fact that the employment picture in this country has been improving slightly, but without the energy industry boom, unemployment would be through the roof. And now that the “energy boom” is rapidly becoming an “energy bust”, what will happen to the struggling U.S. economy as we head into 2015? Snyder is correct: You have got to have an income before you can fill up your vehicle. He goes on to point out a number of troubling trends that could result from falling oil prices… In recent years, there has been a noticeable economic difference between areas of the country where energy is being produced and where energy is not being produced. Since December 2007, a total of 1.36 million jobs have been gained in shale oil states. Meanwhile, a total of 424,000 jobs have been lost in non-shale oil states. So what happens now that the shale oil boom is turning into a bust? That is a very good question. Even more ominous is what an oil price collapse could mean for our financial system. The last time the price of oil declined by more than 40 dollars in less than six months, there was a financial meltdown on Wall Street and we experienced the deepest recession that we have seen since the days of the Great Depression. And now many fear that this collapse in the price of oil could trigger another financial panic. A financial panic because of falling oil prices? It sounds crazy, but it’s entirely possible. Snyder points out that energy junk bonds are starting to take a big hit. Some experts believe that up to 40% of all energy junk bonds will go bust. Furthermore, five of the biggest banks have 40 trillion dollars in exposure to derivatives. A portion of these are energy derivatives. If these begin to unwind, it could spell disaster for the banks. As we wrote in a previous article, the banks have already put in place the legal requirements to steal depositors’ money the next time they need a bail-out. If oil prices continue to fall, this banking crisis and subsequent “bail-in” could happen in the very near future.
Posted on: Sun, 04 Jan 2015 01:35:18 +0000
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